WACC and target weights After careful​ analysis, Dexter Brothers has determined that its optimal capital structure is

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WACC and target weights   After careful​ analysis, DexterBrothers has determined that its optimal capital structure iscomposed of the sources and target market value weights shown inthe following​ table:
Source of capital
Target market
value weight
​Long-term debt
24
​%
Preferred stock
14
Common stock equity
62
Total
100
​%
The cost of debt is estimated to be 4.2​%; the cost ofpreferred stock is estimated to be 10.5​%; the cost ofretained earnings is estimated to be14​%; and the cost of newcommon stock is estimated to be 16​%. All of theseare​ after-tax rates. The​ company's debtrepresents 19​%, the preferred stockrepresents 9​%, and the common stock equityrepresents 72​% of total capital on the basis of themarket values of the three components. The company expects to havea significant amount of retained earnings available and does notexpect to sell any new common stock.
a. Calculate the weighted average cost of capital on the basisof historical market value weights.
b.  Calculate the weighted average cost of capital on the basisof target market value weights.
c.  Compare the answers obtained in parts a and b.  Explain thedifferences.